Ben Stein: Wrong About Earnings

The (unfortunately under-rated) Dylan Ratigan is hosting Kudlow & Company tonite, and one of his guests was Ben Stein.

I’ve been on several shows with Stein, and he’s a nice guy, but . . .

One of the other guests suggested that earnings were decellerating, which Stein vociferously disagreed with. That is, to be blunt, ignorant.

Since peaking in Q3 2003, year over year S&P500 earnings gains have been decelerating. From nearly 30% Y-over-Y, straight down for the next 6 quarters to just under 10%. The past two quarters have seen minor improvements — thanks to energy — to push Y-over-Y earnings back over 10%. But back out Energy and the decelerating trend remains intact.   

Further, there is an argument to be made that earnings are meaningless — or at least not the most significant impact on stock price. Why? Most of the gains we have seen in prior Bull Markets are due to P/E expansion, and not earnings gains. Thats purely a function of psychology (more on this tomorrow).


UPDATE:  August 30, 2005 5:26pm
Actually, my title is excessive — Stein did say something that makes a whole lot of sense:  Investors should buy a diversified basket of Indices or ETFs that cover stocks, bonds and commodities. Thats good, simple, low cost advice for most people.

BTW, here is my favorite of Ben Stein’s work:

Economics Teacher: In 1930, the
Republican-controlled House of Representatives, in an effort to alleviate the
effects of the… Anyone? Anyone?… the Great Depression, passed the… Anyone?
Anyone? The tariff bill? The Hawley-Smoot Tariff Act? Which, anyone? Raised or
lowered?… raised tariffs, in an effort to collect more revenue for the federal
government. Did it work? Anyone? Anyone know the effects? It did not work, and
the United States sank deeper into the Great Depression. Today we have a similar
debate over this. Anyone know what this is? Class? Anyone? Anyone? Anyone seen
this before? The Laffer Curve. Anyone know what this says? It says that at this
point on the revenue curve, you will get exactly the same amount of revenue as
at this point. This is very controversial. Does anyone know what Vice President
Bush called this in 1980? Anyone? Something-d-o-o economics. "Voodoo" economics.


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  1. rob commented on Aug 30

    then the next guy comes on and recommends a bunch of stocks with really crappy looking charts

  2. CalculatedRisk commented on Aug 30

    I like Ben Stein as an actor. Ben’s Dad, Herb Stein, was an excellent economist.

    “Herb Stein once said that if you are organizing a conference or a professional gathering somewhere pleasant like New Orleans, it is a good idea to invite an economist to address it. This reassures the Internal Revenue Service that attendance cannot be for the purpose of pleasure and thereby makes it a deductible expense.”
    Remembering Herb Stein

  3. Brian commented on Aug 30

    I like Ratigan too. He’s a bit tougher than most of the CNBC softball experts. That guy from Forbes comes on and says their number one midcap stock is Aeropostale* and Ratigan says “are you mad?”

    *some sort of early teen retail place I never heard of, yeah, put the whole IRA in that

  4. Steve commented on Aug 30

    I totally agree with you re Ratigan and Stein. If only you would see the light re Kudlow!!

  5. spencer commented on Aug 31

    Did you notice that Jude Wanniske died yesterday.

    He is credited with coining the term “supply-side economics”.

  6. anonimouse commented on Aug 31

    Jude Wanniski also contended that it was the upcoming 1930 passage of the Smoot-Hawley Tariff Acts which, in 1929, caused the stock market to crash and initiated the Great Depression. This is a highly interesting though unprovable assertion.

  7. john brown commented on Aug 31

    Also caught the Dylan standin and thought that an improvement to the Kudlow show. Stein also took another opportunity to recommend buying “Australia” as an index, something he also pushed on a prior Kudlow visit about a month ago, I think it was. From my Sydney perspective, I have an issue with that. See tail-end of post at

  8. Lord commented on Aug 31

    Sure Smoot-Hawley raised tariffs to highs, but they were almost never less than 50% for the entire first part of the 20th century. They didn’t help recovery but cause is a big stretch.

  9. Buford P. Stinkleberry commented on Aug 31

    Kudlow? In a fact free universe, he’s an honorable human being. Not this universe; he’s a partisan hack and an apologist for the administration, much like Ben Stein.

    And Stein is a simplistic underinformed nutjob on foreign policy, too; witness his remarks about how Nixon “saved” Israel.

  10. wdf commented on Aug 31

    Stein is correct that earnings are not decelerating. And you said as much yourself. The rate of INCREASE is decelerating, but earnings are still growing.

    BLR: true ! you are correct.
    But again, my reference is where are earnigns in the cycle

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